Lesson Three Buying a Home - Practical Money Skills

1 Buying a HomeLesson Three $Teacher's Guideover viewFor many, Buying a home is the single most important financial decision they will make in their , the process of becoming a first-time homebuyer can be overwhelming, and requires a foundation for basic home- Buying Lesson will provide students with information on Buying a home and where and how to begin the process. After comparing the differences between renting and Buying , students will be introduced to a five-step process for home Buying . This framework provides an overview for the activities involved with selecting and purchasing a home. What type of mortgage should I select? This common question will be covered, as well as what lenders look for when qualifying an applicant for a home loan. Next, the costs associated with finalizing a real estate purchase, or closing costs, are discussed.

2 Finally, students are put on the other side of the real estate transaction as a seller. Several suggestions are offered for selling a students a basic understanding of the process and costs involved with home objectives Compare benefits and drawbacks of renting vs. Buying a home Develop a knowledge of the home- Buying process Understand steps involved in applying for a mortgage Understand and compare various types of mortgages Identify actions to take when selling a home presentation slides 3-A the home- Buying process 3- B qualifying for a mortgage 3- C types of mortgages 3- D closing costs 3-E selling your home Buying a home Lesson Buying a home teacher's guide 3-iactivities 3-1 Should They Buy or Rent? Divide students into teams of two or Three people. Have students make decisions regarding the housing-decision situations on the activity sheet.

3 As a class, discuss student answers for the situations. What differences exist among the teams? What are some reasons for those differences? 3-2 Conducting a Home Inspection Ask students to list items that should be considered when evaluating the condition of a home for purchase. Discuss their findings. What items were noted by most students? What items were only noted by a few students? 3-3 Shopping for a Mortgage Using the Internet or contacting a mortgage broker, obtain information on the costs and rates for a mortgage. Discuss the differences that may be present among different financial institutions. 3- 4 Computing Mortgage Payments Using the exercise sheet, have students compute the monthly mortgage payment for the situations on the activity sheet. As a follow-up, discuss the following: What factors affect changing mortgage rates in our economy?

4 What are the advantages of a 15-year mortgage over a 30-year mortgage? What are the disadvantages? 3-5 Lesson Three QuizFor more information, please refer to the a home Lesson Buying a home teacher's guide 3-iibuying a home target Buying a home teacher's guide 3-iiiLearning activities appropriate to varied target audiences for Lesson Three activity teenagers young adults adults (14-18) (19-25) (26+) Survey/Interview Student Activity 3-1 Student Activity 3-2 Oral Presentation Web Activity Student Activity 3-3 Student Activity 3-4 Field Activity Lesson Three Quiz 3-5 Buying a home teaching Buying a home teacher's guide 3-ivcomparing renting and buying1.

5 Main advantages of renting are: Ease of mobility Fewer responsibilities Lower initial costs2. Common disadvantages of renting are: Few financial benefits in the form of tax deductions Restricted lifestyle, decorating, having pets, and other activities Legal concerns No opportunity to build the value of a home3. Key benefits of Buying your housing are: Tax savings Pride of ownership Potential economic gain4. Disadvantages of Buying your house may include: Financial risk and opportunity cost to raising funds for down payment, obtaining a mortgage, fluctuating values and mortgage caps Limited mobility if a home is difficult to sell Higher living costs due to repairs and maintenancethe home- Buying process Phase 1 Determine home ownership needs Phase 2 Locate and evaluate a home Phase 3 Price the property Phase 4 Obtain financing Phase 5 Close the purchase transaction discussionsurvey/interview.

6 Have students talk to various people about the reason they rent or own a activity 3-1discussionstudent activity 3-2slide 3-A applying for a mortgage Determine an estimated value of the house Obtain funds for a down payment Reduce debts or improve your credit score, if necessary Compare fees, services, and mortgage rates for different lenders Prepare the mortgage application types of mortgages A conventional mortgage has equal payments, typically over 15, 30, or 40 years based on a fixed interest rate Government-guaranteed financing programs include loans from the Federal Housing Authority (FHA) and the Veterans Administration (VA) A balloon mortgage has fixed monthly payments and a very large final payment, usually after Three , five, or seven years The adjustable rate mortgage (ARM), also referred to as a flexible rate mortgage or a variable rate mortgage, has an interest rate that increases or decreases during the life of the loan based on changes in market interest rates A graduated payment mortgage has payments rising to different levels during the term of the loan A growing equity mortgage has increases in payments for the loan to be paid off more quickly without negative amortization A buydown is a deal where you pay an upfront sum to the bank to have the interest rate lowered for part or all of the life of the loan A shared appreciation mortgage (SAM)

7 Is an arrangement in which the lender agrees to take some or all of the repayment for the loan in the form of a percentage of the increased value of the home upon sale or borrower deathbuying a home teaching Buying a home teacher's guide 3-vdiscussionoral presentation:slide 3-BHave students present in class (or on video) examples of actions that could improve or reduce their ability to obtain a mortgage. discussionweb activity:slide 3-CHave students locate information on current mortgage rates using a web of mortgages (continued) An interest-only mortgage consists of interest-only payments for a specified period, usually five to ten years, during which the principal balance remains unchanged Reverse mortgages provide an elderly homeowner with tax-free income in the form of a loan against the equity they've built in their home' that is paid back (with interest)

8 When the home is sold or the homeowner dies Refinancing refers to obtaining a new mortgage on your current home, typically at a lower interest rateselecting a mortgage Shop around for mortgages through multiple lenders Estimate a mortgage payment based on different factors including interest rates and different terms of the loanclosing costsThe common costs associated with the settlement of a real estate transaction may include: Attorney or escrow fees Title insurance Property taxes Appraisal fee Recording fees, transfer taxes Loan discount points Inspections Lender s origination fee Reserves for home insurance and property taxes Interest (paid from date of closing to 30 days before first monthly payment) Real estate agent commissionbuying a home teaching Buying a home teacher's guide 3-vidiscussionstudent activity 3-3student activity 3-4 discussionslide 3-Dbuying a home teaching notesselling your home1.

9 Prepare your home for selling to increase appeal and market value 2. Determine the selling price based on an appraisal, the location, features, age of the home, current mortgage rates, and market demand3. Decide if you will do a sale by owner 4. Consider using the services of a real estate agentlesson Three Buying a home teacher's guide 3-viidiscussionfield activity:slide 3-EHave students talk to someone who recently sold a home to obtain information on that 3-5should they rent or buy? answer Buying a home student activity key 3-1directions For each of the following situations, circle RENT, BUY, or DEPENDS to indicate your opinion related to this person s housing decision. Also, give reasons for your : Marla, age 22, plans to work full time while completing her college degree in a nearby city. RENT BUY DEPENDS2: Bill, age 44, travels out of town frequently for his sales job.

10 His company may transfer him to another sales territory within a year or two. RENT BUY DEPENDS3: Craig, age 32, recently completed his master s degree in business while working at the same company for the past six years. He has also been able to save nearly $20,000 over this time period. RENT BUY DEPENDS4: Jess, age 19, has just taken her first job as a sales representative trainee for a computer software company. RENT BUY DEPENDS5: Barb and Frank, ages 54 and 57, are planning to retire within the next few years.